AUD/USD Turns Cautious after Hitting Familiar Roadblock

  • AUDUSD
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AUD/USD Analysis

The Reserve Bank of Australia kicked-off last week's central banking blitz, with a hawkish surprise. After April's pause, officials restarted their hiking cycle with a 0.25% rate increase, against markets expectations for another hold [1]. CPI inflation had moderated to 7% y/y in Q1 and although the RBA welcomed the lower print, it stressed that inflation is "still too high".

The US Federal Reserve followed with a 25 basis point increase and even though it did not take more hikes off the table, it opened the door to a pause [2], which would be in line with its own projections and market expectations. More to it, CME's FedWatch Tool points to rate cuts ahead, assigning the highest probability to rates falling to 4.5% by the end of the year (from 5.25% currently). [3]

The hawkish surprise by the RBA and the pause hint by its US counterpart boosted AUD/USD, which registered its sixth straight profitable day on Monday. It tests the 38.2% Fibonacci of the 2023 high/low drop that allows it to look the next level and the upper border of the thick daily Ichimokou Cloud (0.6860), but we are cautious for further gains towards 0.7000-17.

However, the impressive profitable streak looks stretched as it hits the familiar 38.2% Fibonacci, which the Aussie had rejected multiple times last month. The pair slides today as poor Q1 retail sales and the technicals weigh, creating risk for a test of the EMA200 and the lower border of the Ichimokou Cloud (0.6700-0.6690). Daily closes below them will bring the 2023 low in the spotlight, but a breach will likely need a strong catalyst.

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Markets now turn to Wednesday's CPI inflation figures from the US, for more direction.

Nikos Tzabouras

Senior Financial Editorial Writer

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 08 May 2023 https://www.rba.gov.au/media-releases/2023/mr-23-10.html

2

Retrieved 08 May 2023 https://www.federalreserve.gov/monetarypolicy/fomcpresconf20230503.htm

3

Retrieved 15 Jul 2024 https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html

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